Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT’s Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I’ll review new posts on legality and constitutionality.

Kevin Drum on legality

Kevin Drum of Mother Jones filed his second recent post claiming that the trillion dollar coin is illegal and will be subject to challenge in Court on grounds of intent. He repeats exactly the same reasoning he used in his first post. I’ve already critiqued that reasoning saying that the Courts generally don’t try to interpret laws based on theories about Congressional intent. The Justices aren’t collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn’t something any Court is likely to take up. Drum then adds:

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I’m quite certain this isn’t true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don’t think there’s even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I’m wrong, then I guess I’m wrong.

Well,, the language of 31USC5112(k) doesn’t look very tortured or “hypertechnical” either to myself or many others who have looked at this including lawyers Jack Balkin and Carlos Mucha (beowulf); but seems very plain and unambiguous. Drum is entitled to his opinion, but as he keeps saying, he’s no lawyer, and his judgment about what the Courts will do based on the problem of intent isn’t very plausible.

What if a trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this? Please Kevin, give us a break!

John Carney on Unconstitutionality

John Carney believes that Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin are unconstitutional. The core of his argument is:

There are limits to how far Congress can stretch its powers under the necessary and proper clause. Of particular interest to us here is the non-delegation doctrine, which holds that the Constitution’s requirement that laws be passed by both houses of Congress and signed into law by the government constrains the ability of Congress to delegate its lawmaking authority to other bodies. . . .

The Supreme Court . . . . went out of its way to affirm the basic principle of non-delegation . . .

Article I, Section 1, of the Constitution vests “[a]ll legislative Powers herein granted… in a Congress of the United States.” This text permits no delegation of those powers, and so we repeatedly have said that when Congress confers decision making authority upon agencies Congress must “lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform.”

So the question that is relevant for us here is whether or not the law that authorizes the creation of platinum coins by the U.S. Treasury lays down an “intelligible principle” to which the Treasury is directed to conform.

He then quotes the law authorizing PCS:

“The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

You see the problem here, right? There’s no intelligible principle whatsoever. The law gives the Secretary complete discretion over everything having to do with the minting of platinum coins. This is very likely an unconstitutional delegation of the legislative power to coin money and regulate the value thereof.

Carney goes on to talk about issues of standing recognizing that standing may be very difficult to get from the Courts and that therefore it may not be possible to challenge the law. But he still thinks that the above argument is a decisive one and that the coin seigniorage law is unconstitutional. You see the problems here, right?

First, the power to physically mint coins is not a law making power, per se. In delegating this power to the Treasury and the Mint, no law making is involved. So, the principle of non-delegation of legislative power may not apply even if “intelligible principles” didn’t exist. But, as we’ll see they do exist anyway.

Second, Congress delegated the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury according to intelligible principles. And in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper. That seems like an intelligible principle to me, even though John Carney may not like the principle.

Beowulf goes much further in pointing out that the Treasury Secretary’s broad coin minting authority is, in fact, highly constrained by Congress. He says:

Now here’s where John is wrong, the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race.

1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.

2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).

3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.

4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court.

This is a pretty decisive argument about “intelligible principles” governing Treasury’s responsibility to coin, isn’t it?

Third, Carney’s using his non-delegation argument to apply against the PCS legislation is remarkably devoid of the legal context of Congress’s delegation of its money power. If the Court were willing to consider such a theory in relation to PCS, then how would it avoid applying the same theory, when someone comes along who wants to challenge the constitutionality of the Fed?

In creating the Fed Congress not only delegated very, very broad money creating powers without specifying intelligible principles to guide the delegation; but in addition, it created an executive institution which is independent of the Executive Branch. Surely, this is an unconstitutional delegation of its power that infringes on the rights of the Executive Branch of Government. But it is an unconstitutional delegation that no one except the President has obvious standing to challenge, as Senator Phil Hart (D-Mich) and Congressman Henry Reuss (D-WI) found during the 1970s when they were denied standing to pursue their suit against the Fed on its constitutionality.

In a second post yesterday John Carney replies to the criticism that the non-delegation principle, if applicable to PCS, should apply equally well to the Fed. He says:

The Federal Reserve Act, which establishes and empowers the Fed, is a long bill full of instructions from Congress about what the Fed may and may not do. (In fact, the Fed’s powers were changed recently, under the Dodd-Frank Act.) Most importantly, the Act directs the Fed to implement monetary policy to meet some very specific goals.

And Carney goes on to quote the mandate of the Fed under the Federal Reserve Act following that with the conclusion:

That’s an extremely explicit “intelligible principle.” The Fed cannot make policy willy-nilly.It must conform its policy to increase production while promoting maximum employment, stable prices and moderate long-term interest rates. The Fed has a lot of latitude when it comes to how best to pursue those goals but the goals are very clear.

All that is true, but, this very explicit instruction of the Fed in the Act makes it quite clear that the Fed performs Executive functions, and the question immediately arises about whether Congress has the constitutional authority to create and maintain it as independent from the Executive Branch, especially since there is no clearer principle in the Constitution than separation of powers and the establishment of only three branches of Government. In addition, the Act establishing the Fed isn’t very explicit in regulating and guiding its money creation powers. Surely it doesn’t explicitly give the Fed the authority to create money out of thin air, or limit this power in any coherent way.

Apart from this however, Carney’s comparison between the Fed legislation and the coin seigniorage legislation is an unfair comparison, because the Fed as an institution with delegated powers should surely be compared to the Treasury as an institution with delegated powers, and then the question should be asked whether Congress has specified “intelligible principles” for both. I think the answer is clearly yes, and also that there is little to distinguish between them on these grounds.

Also, the relevant and fair comparison between the Fed and the Treasury Carney should have made is in the area of money creation powers, rather than comparing the Fed as an institution with the narrow Treasury function of platinum coin minting and seigniorage authority. Once one does that; it’s plain that the authority of the Fed with respect to respect to reserve and currency creation is lavish, and much less regulated and governed by the Congress in the form of “intelligible principles”, than is the coinage authority of the Treasury.

In fact, it is only in the area of PCS that the Treasury has anywhere near the freedom and authority that the Fed routinely exercises over reserves. So, with respect to money creation powers it seems that a much greater delegation problem, if there is one, exists between Congress and the Fed than between Congress and the Treasury.

Of course, no one can be sure about what strange decisions may ensue from this Supreme Court. But the same problem exists with Carney’s theory about what the Courts might do as with Drum’s. That is, if the President uses PCS, cites the legislation, and then prevents a default, will the Courts really then declare the PCS legislation unconstitutional based on a vague doctrine like non-delegation which has had limited previous applicability, which would be questionable in this application, and which might have the consequence of crashing the global financial system? Somehow I doubt that John Roberts and Anthony Kennedy would join in such a ruling; and Justices Kagan, Ginsberg, Briar, and Sotomayor are even less likely to decide that way. In other words, John Carney, if it ever gets to the Supreme Court, which is highly doubtful due to standing problems, I think there’s a 6-3, or perhaps even a 7-2 vote in favor of constitutionality coming up on this one.


Summing up, I think the efforts of Drum and Carney to put forward legal theories about the coin seigniorage legislation are both questionable. Drum really offers a tough argument to make stick, because the kinds of intent considerations he brings forward could be used to challenge any Act that had unintended consequences. When we realize that almost every piece of legislation has unintended consequences, it’s clear that an attack based on intent would really be a difficult one to sustain in the face of the plain language of 31USC5112(k).

And with respect to Carney’s legal theory, that the non-delegation doctrine can be applied to coin seigniorage, it is very hard to take his theory seriously. Sure, legislation that assigns legislative powers to other branches of the Government is unconstitutional. It’s also true that legislation assigning executive functions to agencies outside the Executive Branch is also unconstitutional.

But what is a legislative function and what is an executive function? The boundaries between the two are often not so sharp, and some deference must be and has been given by the courts to Congress’s own decisions in delegating both its own and executive functions (like the Fed’s) to other agencies. So, the application of the non-delegation doctrine is a very subjective matter, and is very unlikely to be relied upon by Courts to check the coinage authority delegated to the Executive by the Congress in the clear language of the law.

(Cross-posted from New Economic Perspectives.)

Photo in the public domain.